November 12, 2006

How subsidies undermine the efficient use of water

Everything is still pretty quiet on the subsidies front as the rest of the world waits to see whether the Democrat victory in the Congressional elections translates into more effective action to reduce farm subsidies. It might if only because the Democrats are likely to take a harder stance on reducing the overall budget deficit but they will still be subject to the enormous power of the farming lobby. Among the most interesting recent publications is a report on water by the OECD, a fount of common sense, in the subsidies world. In theory the OECD reflects the views of its paymasters - including Europe, the US and Japan. If only they would listen! The report points out that subsidies to the farming sector, including lower water charges and financial help for irrigation undermine the efficient use of water. In the OECD Observer, the organisation's house magazine, there is a good article analysing the adverse economic effects of agriculture subsidies which reminds us that "average agricultural tariffs are in the region of 60% of the price of imports, whereas industrial tariffs are rarely above 10%." Maybe that should be stuck above the bedpost of every member of Congress lest they forget.